Momo Traders Going Nuts for China Clean-Tech Plays Like SmartHeat (HEAT)

April 4, 2012 12:38 PM EDT
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Momentum traders are all over SmartHeat Inc. (Nasdaq: HEAT) and its peers since the company posted its fourth quarter results Monday, after the close.

Shares of the China-based clean technology company are up 69 percent today after jumping 92 percent on Tuesday.

Despite the massive surge seen in the stock, results for the company in the quarter were nothing to write home about and were in fact pretty dismal from 2010 due to "a very challenging sales environment caused by a continuation of China's restrictive fiscal policy in 2011."

In the fourth quarter of 2011, total sales increased to $33.68 million compared to $16.57 million in Q3 2011 due to seasonality factors, reinstated orders which were postponed or cancelled and steps to increase sales of PHE Units and PHEs by continuing expansion into regional areas of China. The company posted revenues of $41.79 million in the same quarter last year.

Mainly due to goodwill impairment of $8.96 million taken in Q4 2011, the company experienced an operating loss of $8.82 million in Q4 2011 compared to an operating loss of $2.54 million in Q3 2011 and a net loss for Q4 2011 of $9.59 million compared to net loss of $4.0 million for Q3 2011. If not for one-time impairments to goodwill and inventory taken in Q4 2011, the operating loss would have resulted in operating income of approximately $3.77 million in Q4 2011 compared to operating loss of $2.54 million in Q3 2011.

For the full year ended December 31, 2011, net sales totaled $65.2 million, down 48 percent from the $125.4 million in 2010. The company posted a net loss of $6.20/share in 2011, versus a profit of $6.79/share in the prior year.

One worrisome figure, is that cash and equivalents fell to $12.42 million in 2011, down from $58.6 million in 2010.

Despite the lackluster results and bleeding cash, investors may be holding onto a view that a recovery could be seen on West China's economic development and urbanization trends throughout China. The company also said it instituted a rigorous cost cutting program.

Not only is SmartHeat seeing a surge higher, but the move has spilled over to rivals including: THT Heat Transfer Technology (Nasdaq: THTI) (up 99% today) and Cleantech Solutions International, Inc. (Nasdaq: CLNT) (up 62% today).

For whatever reason, momentum traders have locked onto HEAT and its peers. It may be fun while it last. However, when the music stops don't be the last one standing.

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Pump and Dump
TraderX on 2012-04-04 13:02:44
Mark as Spam | Reply to this comment

this is a classic pump and dump. Shorting to Zero

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